The GBP/USD pair is currently trading in positive territory at around 1.2150 amidst renewed weakness in the US Dollar. The pair is on track to end the week with modest gains, even after experiencing a dip below 1.2100 during the European trading hours.
The USD is finding it challenging to recover demand in the face of plunging US Treasury bond yields. The benchmark 10-year US Treasury bond yield has decreased nearly 5% today to around 3.4%, putting the US Dollar Index (DXY) in the red near 104.00.
The Consumer Confidence Index declined to 63.4 in early March from 67 in February, according to the data published by the University of Michigan (UoM) on Friday. More significantly, Director of UoM Surveys of Consumers, Joanne Hsu, said, “year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021.”
Investors appear to be re-evaluating their positions ahead of next week’s critical Federal Reserve policy meeting, prompted by the report. Currently, the probability of a 25 basis points Fed rate hike next week stands at 68%, down from nearly 80% earlier in the day according to the CME Group FedWatch Tool.
Technically speaking, the GBP/USD pair looks poised to push higher as the week comes to a close, with initial resistance at around 1.2170. This is followed by a secondary resistance level at 1.2200, with a breakout above potentially extending gains to the 1.2270 level.
On the other hand, initial support rests at 1.2140, followed by secondary support at 1.2100, with a breakdown potentially leading to further losses toward the 1.2050 level.
The broader market remains focused on the Fed’s impending policy decision. The central bank is expected to strike a cautious tone, given the recent economic data releases that suggest the US recovery from the pandemic may be less straightforward than anticipated.
Since the beginning of the year, the GBP/USD has gained more than 3%, reflecting the strength of the British Pound amidst the UK’s Covid-19 vaccination progress and the potential for a rate hike by the Bank of England in 2022.
Conversely, the US Dollar has faced headwinds due to rising inflation expectations, forcing the Fed to reconsider its accommodative policy and contemplate tightening measures sooner than expected.
In conclusion, the GBP/USD pair remains in a bullish trajectory, bolstered by the momentum of the British Pound and the headwinds faced by the US Dollar. Investors will be watching next week’s Fed meeting closely, as the central bank’s policy decision could have significant ramifications for the currency markets and global financial markets as a whole.
